Sources say the Congress is likely to submit a ‘dissent note’ on this subject when the panel submits the report.
The multi-party Select Parliamentary panel on the goods and services tax (GST) has finalized its report, which it will submit to the Parliament on July 17, sources have told CNBC-TV18’s Shereen Bhan.
The panel, it is learnt, though is not sure of whether the key tax reform will pass muster in the Monsoon session of Parliament that begins on July 22, though Finance Minister Arun Jaitley has publicly said he is “hopeful” of its passage.
The GST is an ambitious tax reform that the government has been trying to push through and roll out before April 1, 2016. Once implemented, it will subsume most of the country’s central and state level duties and taxes, thus making the country a national market.
Experts suggest the tax has the potential to improve tax compliance, lower the overall tax rate in the country and even boost the country’s GDP growth by 1 or 2 percent.
Among the key changes that have been demanded by the panel are two sought by the Congress: greater state representation for states in the GST council as well as a change in wordings of clause 21 of the GST bill.
The clause 21 of the GST bill uses the wording: the Centre “may” pay compensation [arising out of any loss to states thanks to GST ‘s rollout]. The panel has insisted that “‘may” be replaced with “shall”.
However, sources say that on one key demand, the Congress has found itself isolated: it wanted the government to do away with the proposal levy an additional 1 percent state-level tax over and above GST.
It is learnt that panel members have agreed to not push for this demand, even though critics have said that the clause would dilute the single-tax nature of GST, lead to cascading of taxes and render it less effective.
The 1 percent additional levy was accepted by the government in order to get some states on-board that had been complaining about revenue loss arising out of the GST.
Sources further say the Congress is likely to submit a ‘dissent note’ on this subject when the panel submits the report.
“The 1 percent tax should go. It goes against the principle of GST. The Congress is correct in its stance,” Pratik Jain, Tax Partner, KPMG told CNBC-TV18. “But if it does stay, the government should clarify that it would apply on the first movement of a good across the border and not thereafter.”
If this clarification on the additional state-level tax does not come through, Jain said it would be “unfortunate”. “By the time the good reaches the customer, it could become 4-5 percent.”
The government is said to be keen on obtaining the Congress’ buy-in on the tax, as not only does the bill need to sail through in Rajya Sabha where the principal opposition party has large numbers, but it will also need to pass muster in individual state assemblies — some of which are controlled by it.
Jain said that should the GST bill fail to pass in the Monsoon session, it would be very tough for its rollout to take place on April 1 next year. “It would be unfortunate for the industry and the country then.”